Continental Carriers Inc., established in 1952, is a regulated general commodities motor carrier whose routes ran the length of the Pacific Coast, from Oregon and California to the industrial Midwest, and from Chicago to several points in Texas. Continental Carriers struggled early, experiencing little growth, until the mid-1970’s. Continental needed help in reducing operating costs and also sought improvement in terminal facilities. John Evans, president of CCI, made this possible. ...view middle of the document...
Evans also turned the company around by reducing its operating costs through a combination of extensive computerization of operations and improving the terminal facilities. By the late 1980’s, Evans, along with the directors of the firm, realized that the key to continued expansion in revenues and income was a policy of selected acquisitions.
Continental Carriers currently has the opportunity to purchase Midland Freight Inc. for a mere $50 million in cash. The decision to move ahead with the purchase has already been unanimously approved by the Board of Directors. No interference from the ICC is expected and the deal should be completed by the first of October. Given that Midland will add nearly $8.5 million to CCI’s earnings before interest and taxes, it is not foreseeable that external financing would be hard to obtain.
There were three options that the board of directors debated over: (1) selling $50 million in bonds at a 10% interest rate to a California Insurance Company, (2) issuing 3 million in common stocks at $17.75 per share with a dividend rate of $1.50 per share (Net proceeds of the company at $16.75 per share) or (3) issuing 500 000 preference shares at a par of $100 per share and with a dividend rate of $10.50 per share.